What is the Government Recovery Loan Scheme and how does it work?

Does your business need a loan to help you recover from the Covid pandemic? If so then the Recovery Loan Scheme might offer a great solution. It’s a government-backed scheme where you can borrow up to £10 million if your business is over two years old.

In this guide we explain how the Recovery Loan Scheme works and the pros and cons of using the scheme. We also answer common questions like “how do I apply for a Recovery Loan and “how much can I borrow?”

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  • Borrow over 5 years (or repay early with no fee)
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  • No personal guarantee on loans £250,000 or under

What is the Recovery Loan Scheme?

The Recovery Loan Scheme is a government-backed loan scheme for businesses affected by the Coronavirus pandemic. It’s designed to help established UK businesses with over 2 years trading history and is currently available for any size of business. From 1 January 2022 the scheme is only available for businesses with turnover under £43 million.

The Recovery Loan Scheme is an umbrella scheme that covers different types of business loan. It includes simple business loans, overdrafts, invoice financing arrangements and asset financing facilities.

Key features:

  • 80% guaranteed by the Government (reducing to 70% from 1 January 2022)
  • Minimum loan of £1,000 for asset and invoice finance and £25,001 for term loans and overdrafts.
  • Maximum loan of up to £10 million or £30 million for groups of companies (£2 million or £6 million from 1 January 2022)
  • Lending capped at 25% of your turnover, double your wage bill or double your liquidity needs for 18 months
  • Interest rates capped at 14.99%
  • Contract with the lender
  • Borrower 100% liable for the debt
  • Loans and asset finance facilities available for 3 months - 5 years
  • Overdrafts and invoice financing arrangements available for 3 months - 3 years
  • Certain business types excluded e.g. banks, building societies or state-funded schools

How does the Recovery Loan Scheme work?

How the Recovery Loan Scheme works depends on your type of financing arrangement. The exact terms including the interest rate, repayment schedule and any fees due will be set out in your loan agreement.

Here are the different types of Recovery Loan and how they work:

  • Term business loans - a simple business loan that works a bit like a personal loan. Loan repayments are usually due monthly and interest is due straight away. Lenders may also charge an initial arrangement fee and early repayment fees.
  • Bank overdrafts - a flexible loan facility where you owe interest on the outstanding balance. Interest is calculated monthly and deducted from your bank balance.
  • Invoice financing facilities - this type of loan is raised using the value of your business’s invoice book. You can raise finance on all or part of your invoice book depending on the terms of your agreement. The loan is usually repaid once your invoices are paid.
  • Asset financing arrangements - a loan suitable for leasing or gradually buying assets and usually secured on those assets.

Businesses can borrow up to the lower of:

  • £10 million or £30 million for groups (this is reducing to £2 million from 1 January 2022, or £6 million for groups).
  • One of the following, depending on the lender’s criteria (25% of your business turnover in 2019, double your wage bill in 2019, double your business’s liquidity needs for the next 18 months if you own a small business).

What can I use a Recovery Loan for?

Your business can use a Recovery Loan for any legitimate business purpose including the following:

  • Help with cash flow problems - your business may need cash to pay invoices, wages or buy stock.
  • Purchase equipment - you can use a recovery loan to pay for large-scale purchases like equipment or office furniture.
  • Pay unexpected expenses - a loan can be used to pay for unexpected bills or expenses.

A Recovery Loan may not be suitable if you need to borrow a large amount or have longer term borrowing needs. That’s because Recovery Loans are only available for between 3 months to 5 years and lending is capped at £10 million (reducing to £2 million from 1 January 2022).

Some types of business aren’t eligible for a Recovery Loan. These include the following:

  • Building Societies, Banks, Insurers and Reinsurers (excluding Insurance Brokers)
  • Public sector bodies
  • State funded schools

What are the pros & cons of using the Recovery Loan Scheme?

Here are the main pros and cons of using the Recovery Loan Scheme.


  • Higher chance of being accepted - because the government guarantees 80% of the loan value, there is a lower risk to lenders. This means you may be more likely to be accepted for a Recovery Loan than other types of business finance.
  • Lower interest rates - lenders may offer lower interest rates than a standard business loan, due to the Government guarantee.


  • Only established businesses - the Recovery Loan Scheme is only available to existing businesses over 2 years old. If you own a start up business then you might be eligible for a government-backed Start Up Loan.
  • Only short-term borrowing - loans are only available for up to 5 years so they may not be suitable for all businesses.
  • Time limited - unless it is extended, the scheme is only open until 30 June 2022.
  • Loan amount limited - loans are limited to £2 million from 1 January 2022 (reduced from £10 million) - if your business needs to borrow more than £2 million then you will need an alternative type of business finance.
  • Existing customers - some lenders will only consider applications from existing customers.

How do I apply for a Recovery Loan?

When you apply for a Recovery Loan, lenders will assess your personal and business credit rating and perform affordability checks on your business.

Lenders all have slightly different application processes, but most will also require the following information:

  • Business name and address
  • Information on the intended use of the business loan
  • Details of business owners or partners.
  • Financial accounts or bank statements
  • Details of your business’s annual turnover
  • Details of existing assets

If you are borrowing over £250,000, then some lenders may ask you to sign a personal guarantee as part of their application process.

Where can I get a Recovery Loan?

Get a Recovery Loan with Iwoca. Apply now.

Get started

  • Loans from £25,001 - £750,000
  • Borrow over 5 years (or repay early with no fee)
  • Help from your own account manager
  • No personal guarantee on loans £250,000 or under

The Recovery Loan Scheme is available through government accredited lenders including the following:

Frequently asked questions

The Recovery Loan Scheme is currently available for businesses that fit the following criteria:

  • Trade in the UK
  • Viable or would have been viable without the Covid crisis
  • Impacted by the Covid pandemic
  • Not in collective insolvency proceedings
  • Not an excluded business (bank, building society, school or public body)

There is currently no turnover restriction for businesses accessing the scheme, although this is due to change soon. From 1 January 2022 the Recovery Loan Scheme will only be open to small and medium sized businesses with turnover less than £45m per year.

The cost of your Recovery Loan depends on the type of loan, your interest rate and the length of your loan term. Some lenders also charge an arrangement fee and early repayment fees.

Interest rates are capped at 14.99% but will vary between lenders and will depend on your credit score and the financial health of your business. The average interest rate on term loans is between 6 - 12% per year. There is no interest-free period and loan repayments are usually due straight away.

From 1 January 2022 the Recovery Loan Scheme rules are changing (existing loans will not be affected). The changes are as follows:

  • Only small and medium sized enterprises with turnover under £45 million will be eligible for a loan (previously no turnover limit).
  • Finance will be limited to £2 million per business or £6m per Group of companies (previously £10 million per business and £30 million per group).
  • Government guarantee to lenders will reduce to 70% (previously 80%).

Lenders will assess each loan application on an individual basis. How much you can borrow depends on their eligibility criteria, your business’s financial performance and the value of your business assets.

Lending is currently capped at £10m per business and £30m per group. Loans start at £1,000 for asset and invoice financing and £25,000 for terms loans and overdrafts.

On 1 January 2022 the Recovery Loan Scheme rules are changing. Businesses will only be able to borrow up to £2 million per business or £6 million per group.

The Recovery Loan Scheme is set to end on 30 June 2022.

The Recovery Loan Scheme doesn’t require a personal guarantee for loans under £250,000. If your business needs to borrow more than this then a lender might require a personal guarantee, depending on their policy.

Businesses can take out a Recovery Loan even if they already have outstanding government debt. However, the maximum you can borrow is 25% of your annual turnover. This cap includes any debt outstanding on the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) or Recovery Loan Scheme (RLS). Bounce back loans (BBLS) are excluded from the cap.